New World. New Thinking. Stock Code: 992

Lenovo Group Limited INTERIM REPORT 2006/07 New World. New Thinking. Stock Code: 992

more innovation in the hands of more people

Interim Results The board of directors (the Board ) of Lenovo Group Limited (the Company ) is pleased to announce the unaudited results of the Company and its subsidiaries (the Group ) for the six months ended September 30, 2006 together with comparative fi gures for the corresponding period of last year, as follows: Consolidated Income Statement 3 months 6 months 3 months 6 months ended ended ended ended September 30, September 30, September 30, September 30, 2006 2006 2005 2005 (unaudited) (unaudited) (unaudited) (unaudited) Note US$ 000 US$ 000 US$ 000 US$ 000 (note 1(c)) Turnover 2 3,700,424 7,176,118 3,653,119 6,167,586 Cost of sales (3,220,116) (6,198,942) (3,141,680) (5,270,733) Gross profi t 480,308 977,176 511,439 896,853 Other income/(expense) net 3 16,206 26,157 5,886 8,491 Selling and distribution expenses (267,438) (564,074) (274,492) (465,044) Administrative expenses (113,159) (227,849) (112,920) (188,251) Research and development expenses (55,809) (107,110) (51,260) (84,349) Other operating expenses (9,013) (30,516) (2,025) (17,811) Operating profi t 51,095 73,784 76,628 149,889 Finance costs 4 (8,427) (17,578) (12,080) (18,803) Share of profi ts of jointly controlled entities 138 Share of profi ts/(losses) of associated companies 334 1,640 436 (235) Profi t before taxation 5 43,002 57,846 64,984 130,989 Taxation 6 (5,117) (14,755) (17,000) (36,444) Profi t for the period 37,885 43,091 47,984 94,545 Profi t attributable to: Shareholders of the Company 37,885 43,091 45,406 91,174 Minority interests 2,578 3,371 37,885 43,091 47,984 94,545 Dividend 7 27,454 27,235 Earnings per share Basic 8(a) US0.44 cents US0.50 cents US0.51 cents US1.03 cents Diluted 8(b) US0.43 cents US0.49 cents US0.50 cents US1.03 cents LENOVO GROUP INTERIM REPORT 2006/07 1

Consolidated Balance Sheet September 30, March 31, 2006 2006 (unaudited) (audited) Note US$ 000 US$ 000 Non-current assets Property, plant and equipment 238,986 222,364 Prepaid lease payments 6,101 6,412 Construction-in-progress 43,861 27,965 Intangible assets 1,866,286 1,909,805 Investments in associated companies 8,197 9,060 Deferred tax assets 61,956 62,345 Available-for-sale fi nancial assets 27,240 30,250 Other non-current assets 70,557 36,816 2,323,184 2,305,017 Current assets Inventories 344,001 363,135 Trade receivables 11(a) 710,474 484,773 Notes receivable 240,980 92,522 Deposits, prepayments and other receivables 840,561 790,130 Cash and cash equivalents 1,101,142 1,004,981 3,237,158 2,735,541 Total assets 5,560,342 5,040,558 Share capital 9 28,485 28,504 Reserves 935,464 1,015,399 Shareholders funds 963,949 1,043,903 Minority interests 744 744 Total equity 964,693 1,044,647 Non-current liabilities 10 865,294 813,586 Current liabilities Trade payables 11(b) 2,155,487 1,683,171 Notes payable 58,704 49,433 Accruals and other payables 12 1,480,737 1,259,980 Tax payable 11,190 39,604 Short-term bank loans 11,448 128,358 Current portion of non-current liabilities 10 12,789 21,779 3,730,355 3,182,325 Total liabilities 4,595,649 3,995,911 Total equity and liabilities 5,560,342 5,040,558 Net current liabilities 493,197 446,784 Total assets less current liabilities 1,829,987 1,858,233 2 LENOVO GROUP INTERIM REPORT 2006/07

Condensed Consolidated Cash Flow Statement 6 months ended 6 months ended September 30, September 30, 2006 2005 (unaudited) (unaudited) US$ 000 US$ 000 Net cash generated from operating activities 390,775 1,113,157 Net cash used in investing activities (58,254) (678,851) Net cash (used in)/generated from fi nancing activities (226,914) 677,082 Increase in cash and cash equivalents 105,607 1,111,388 Effect of foreign exchange rate changes (9,446) (2,133) Cash and cash equivalents at the beginning of the period 1,004,981 387,101 Cash and cash equivalents at the end of the period 1,101,142 1,496,356 LENOVO GROUP INTERIM REPORT 2006/07 3

Consolidated Statement of Changes in Equity Convertible rights in respect Retained of convertible Surplus Investment Share Employee Share-based earnings/ Share Share preferred arising on Exchange revaluation redemption share compensation (accumulated Minority capital premium shares consolidation reserve reserve reserve trusts reserve losses) interests Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 At April 1, 2006 28,504 1,043,260 10,769 (3,313) (3,579) 396 (51,043) 22,791 (3,882) 744 1,044,647 Fair value loss on available-for-sale financial assets (2,836) - (2,836) Exchange differences (30,517) (30,517) Profit for the period 43,091 43,091 Reserve realized on disposal of available-for-sale financial assets - 310-310 Issue of ordinary shares 31 2,919 2,950 Vesting of shares under long-term incentive program 7,733 (7,733) Share-based compensation 16,562 16,562 Repurchase of shares (50) (4,602) 50 (4,602) Contributions to employee share trusts (73,654) (73,654) Dividend paid (31,258) (31,258) At September 30, 2006 28,485 1,041,577 10,769 (33,830) (6,105) 446 (116,964) 31,620 7,951 744 964,693 Convertible rights in respect of convertible Surplus Investment Share Employee Share-based Share Share preferred arising on Exchange revaluation redemption share compensation Retained Minority capital premium shares consolidation reserve reserve reserve trusts reserve earnings interests Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 At April 1, 2005 23,958 610,448 3,573 268 (453) 396 29,040 3,027 670,257 Adoption of HKFRS 3 (3,573) 3,573 As restated 23,958 610,448 268 (453) 396 32,613 3,027 670,257 Fair value loss on available-for-sale fi nancial assets (3,878) (3,878) Exchange differences 1,643 77 1,720 Profi t for the period 91,174 3,371 94,545 Issue of ordinary shares 5,586 550,233 555,819 Issue of convertible preferred shares and warrant 39,849 39,849 Exercise of share options 202 19,336 19,538 Share based compensation 8,996 8,996 Repurchase of shares (1,397) (150,825) (152,222) Contributions to employee share trusts (13,355) (13,355) Dividend paid (31,572) (31,572) At September 30, 2005 28,349 1,029,192 39,849 1,911 (4,331) 396 (13,355) 8,996 92,215 6,475 1,189,697 4 LENOVO GROUP INTERIM REPORT 2006/07

Notes to the Condensed Interim Financial Statements 1. Basis of preparation The Board is responsible for the preparation of the Group s unaudited condensed interim fi nancial statements. These unaudited condensed interim fi nancial statements have been prepared in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certifi ed Public Accountants and Appendix 16 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. They have been prepared under the historical cost convention except that available-for-sale fi nancial assets are stated at fair value. These unaudited condensed interim fi nancial statements should be read in conjunction with the 2005/06 annual fi nancial statements. (a) Change in presentation currency Effective from April 1, 2006, the Group has changed its presentation currency for the preparation of its fi nancial statements from Hong Kong dollars to United States dollars ( US dollars or US$ ) as US dollars became the major currency of the Group s transactions. The Board considers the change will result in a more appropriate presentation of the Group s transactions in the fi nancial statements. The comparative fi gures in these unaudited condensed interim fi nancial statements are translated from Hong Kong dollars to US dollars using the rates that approximate the closing rates for balance sheet items and average rates for the period under review for income statement items. The change in presentation currency has no signifi cant impact on the fi nancial position of the Group as at March 31 or September 30, 2006, or the results and cash fl ows of the Group for the six months ended September 30, 2005 and 2006. (b) (c) (d) Change in presentation format The Group has elected to present its income statement by function of expense with effect from April 1, 2006. The Board considers that it is more appropriate for the Group to present the income statement by function of expense. Comparative figures in the first quarter During the quarter, certain classifi cations of expenses between Selling and distribution and Administrative functions have been changed. As a result, the comparative fi gures in the fi rst quarter have been reclassifi ed to conform to the current period s presentation. Accounting policies The principal accounting policies and methods of computation used in the preparation of these unaudited condensed interim fi nancial statements are consistent with those used in the annual fi nancial statements for the year ended March 31, 2006. The following new standards, amendments to standards and interpretations are mandatory for the year ending March 31, 2007. The Group has adopted these new standards, amendments to standards and interpretations where considered appropriate and relevant to its operations. Amendment to HKAS 19, Actuarial gains and losses, group plans and disclosures Amendment to HKAS 39, The fair value option Amendment to HKAS 21, Net investment in a foreign operation Amendment to HKAS 39, Cash fl ow hedge accounting of forecast intragroup transactions Amendment to HKAS 39 and HKFRS 4, Financial guarantee contracts HKFRS 6, Exploration for and evaluation of mineral resources HK(IFRIC)-Int 4, Determining whether an arrangement contains a lease HK(IFRIC)-Int 5, Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds HK(IFRIC)-Int 6, Liabilities arising from participating in a specifi c market waste electrical and electronic equipment HK(IFRIC)-Int 7, Applying the restatement approach under HKAS 29 The following new standards, amendments to standards and interpretations have been issued but are not effective for 2006/07 and have not been early adopted. HK(IFRIC)-Int 8, Scope of HKFRS 2, effective for annual periods beginning on or after May 1, 2006 HK(IFRIC)-Int 9, Reassessment of embedded derivatives, effective for annual periods beginning on or after June 1, 2006 HK(IFRIC)-Int 10, Interim fi nancial reporting and impairment, effective for annual periods beginning on or after November 1, 2006 HKFRS 7, Financial instruments: Disclosures, effective for annual periods beginning on or after January 1, 2007 Amendment to HKAS 1, Capital disclosures, effective for annual periods beginning on or after January 1, 2007 The Group has not early adopted these standards and interpretations in the fi nancial statements for the year ending March 31, 2007. The Group is in the process of assessing the impact to the Group s accounting policies on the adoption of the above standards and interpretations in future periods, but is not in a position to state whether these new standards and interpretations would have a signifi cant impact on its results of operations and fi nancial position. LENOVO GROUP INTERIM REPORT 2006/07 5

Notes to the Condensed Interim Financial Statements (continued) 2. Segment information In accordance with the Group s internal fi nancial reporting, the Group has adopted geographical segments as the primary reporting format and business segments as the secondary reporting format. (a) Primary reporting format geographical segments The segment results for the six months ended September 30, 2006 are as follows: Europe, Asia Pacific Middle East (excluding Corporate or Americas and Africa Greater China) Greater China unallocated Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Turnover 2,080,485 1,412,583 899,913 2,783,137 7,176,118 Segment operating results (40,426) (13,390) (10,592) 173,873 (61,838) 47,627 Finance income 11,336 Impairment of assets (3,762) Fair value change on warrants (355) Finance costs (17,578) Gain on disposal of investments and available-for-sale fi nancial assets 18,938 Share of profi ts of associated companies 1,640 Profi t before taxation 57,846 Taxation (14,755) Profi t for the period 43,091 The segment results for the six months ended September 30, 2005 are as follows: Europe, Asia Pacifi c Middle East (excluding Corporate or Americas and Africa Greater China) Greater China unallocated Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Turnover 1,870,638 1,214,901 757,249 2,324,798 6,167,586 Segment operating results 59,474 (3,619) 8,986 132,048 (55,491) 141,398 Finance income 8,623 Finance costs (18,803) Loss on disposal of available-for-sale fi nancial assets (132) Share of profi ts of jointly controlled entities 138 Share of losses of associated companies (235) Profi t before taxation 130,989 Taxation (36,444) Profi t for the period 94,545 6 LENOVO GROUP INTERIM REPORT 2006/07

Notes to the Condensed Interim Financial Statements (continued) 2. Segment information (continued) (b) Secondary reporting format business segments For the six months ended September 30, 2006 Personal Computer Mobile Desktop Notebook Total Handset Others Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Turnover 3,022,055 3,705,443 6,727,498 339,634 108,986 7,176,118 Capital expenditure 78,662 3,549 1,139 83,350 For the six months ended September 30, 2005 Turnover 2,828,287 2,966,402 5,794,689 250,747 122,150 6,167,586 Capital expenditure 35,612 1,541 750 37,903 Total segment assets as at September 30, 2006 (unaudited) 1,178,604 69,808 47,043 1,295,455 Total segment assets as at March 31, 2006 (audited) 823,877 74,732 41,821 940,430 3. Other income/(expense) net 3 months ended 6 months ended 3 months ended 6 months ended September 30, September 30, September 30, September 30, 2006 2006 2005 2005 (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 Finance income 6,918 11,336 5,672 8,623 Impairment of assets (3,762) Fair value change on warrants (9,695) (355) Gain/(loss) on disposal of investments and available-for-sale fi nancial assets 18,983 18,938 214 (132) 16,206 26,157 5,886 8,491 4. Finance costs 3 months ended 6 months ended 3 months ended 6 months ended September 30, September 30, September 30, September 30, 2006 2006 2005 2005 (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 Interest payable on bank loans and overdrafts 2,373 5,591 5,573 9,868 Dividend and relevant fi nance costs on convertible preferred shares not wholly payable within fi ve years 5,529 10,984 5,944 7,997 Others 525 1,003 563 938 8,427 17,578 12,080 18,803 LENOVO GROUP INTERIM REPORT 2006/07 7

Notes to the Condensed Interim Financial Statements (continued) 5. Profit before taxation Profi t before taxation is stated after charging the following: 3 months ended 6 months ended 3 months ended 6 months ended September 30, September 30, September 30, September 30, 2006 2006 2005 2005 (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 Amortization of intangible assets 24,757 50,410 26,410 47,109 Depreciation expenses and amortization of prepaid lease payments 17,731 33,992 17,132 30,375 Staff costs (including amortization of share-based compensation of US$9,835,000 (2005: US$7,310,000) for three-month period and US$16,562,000 (2005: US$8,996,000) for six-month period) 226,940 458,326 230,985 380,009 Rental expenses under operating leases 7,180 17,613 3,025 8,770 Restructuring costs 1,965 21,361 6. Taxation The amount of taxation in the consolidated income statement represents: 3 months ended 6 months ended 3 months ended 6 months ended September 30, September 30, September 30, September 30, 2006 2006 2005 2005 (unaudited) (unaudited) (unaudited) (unaudited) US$ 000 US$ 000 US$ 000 US$ 000 Current taxation Hong Kong profi ts tax (51) (4) 8 Taxation outside Hong Kong (15,365) 4,234 42,425 62,218 Deferred taxation 20,533 10,525 (25,425) (25,782) 5,117 14,755 17,000 36,444 7. Dividend 6 months ended 6 months ended September 30, September 30, 2006 2005 (unaudited) (unaudited) US$ 000 US$ 000 Interim dividend, declared after period end, of HK2.4 cents (2005/06: HK2.4 cents) per ordinary share 27,454 27,235 8 LENOVO GROUP INTERIM REPORT 2006/07

Notes to the Condensed Interim Financial Statements (continued) 8. Earnings per share (a) Basic Basic earnings per share is calculated by dividing the profi t attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the period. 6 months ended 6 months ended September 30, September 30, 2006 2005 (unaudited) (unaudited) Profi t attributable to shareholders of the Company (US$ 000) 43,091 91,174 Weighted average number of ordinary shares in issue for the purpose of basic earnings per share 8,686,415,657 8,812,613,228 (b) Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding due to the effect of all dilutive potential ordinary shares. The Company has four categories of dilutive potential ordinary shares: convertible preferred shares, share options, long-term incentive awards and warrants. The convertible preferred shares are antidilutive as the amount of the dividend and related fi nance costs for the period per ordinary share attainable on conversion exceeds basic earnings per share and they are excluded from the weighted average number of ordinary shares in issue for calculation of diluted earnings per share. For the share options and warrants, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average periodic market share price of the Company s shares) based on the monetary value of the subscription rights attached to outstanding share options and warrants. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise in full of the share options and warrants. For the long-term incentive awards, a calculation is done to determine whether the long-term incentive awards are dilutive, and the number of shares that are deemed to be issued. 6 months ended 6 months ended September 30, September 30, 2006 2005 (unaudited) (unaudited) Profi t attributable to shareholders of the Company (US$ 000) 43,091 91,174 Weighted average number of ordinary shares in issue 8,686,415,657 8,812,613,228 Adjustments for share options, warrants and long-term incentive awards 118,992,518 27,556,610 Weighted average number of ordinary shares in issue for calculation of diluted earnings per share 8,805,408,175 8,840,169,838 LENOVO GROUP INTERIM REPORT 2006/07 9

Notes to the Condensed Interim Financial Statements (continued) 9. Share capital Authorized: September 30, 2006 March 31, 2006 (unaudited) (audited) Number of Number of shares HK$ 000 shares HK$ 000 Ordinary shares 20,000,000,000 500,000 20,000,000,000 500,000 Series A cumulative convertible preferred shares 3,000,000 27,525 3,000,000 27,525 Issued and fully paid: 20,003,000,000 527,525 20,003,000,000 527,525 Number of Number of shares US$ 000 shares US$ 000 Voting ordinary shares: At the beginning of the period/year 8,517,920,623 27,301 7,474,796,108 23,958 Issued during the period/year 821,234,569 2,632 Conversion from non-voting shares 110,635,946 355 Exercise of share options 9,558,399 31 111,254,000 356 Repurchase of shares (15,390,000) (50) At the end of the period/year 8,512,089,022 27,282 8,517,920,623 27,301 Non-voting ordinary shares: At the beginning of the period/year 375,282,756 1,203 Issued during the period/year 921,636,459 2,954 Conversion into voting shares (110,635,946) (355) Repurchase of shares (435,717,757) (1,396) At the end of the period/year 375,282,756 1,203 375,282,756 1,203 Total issued and fully paid ordinary shares 8,887,371,778 28,485 8,893,203,379 28,504 Total issued and fully paid series A cumulative convertible preferred shares 2,730,000 3,211 2,730,000 3,211 10 LENOVO GROUP INTERIM REPORT 2006/07

Notes to the Condensed Interim Financial Statements (continued) 10. Non-current liabilities September 30, March 31, 2006 2006 (unaudited) (audited) US$ 000 US$ 000 Amount payable for marketing right payable within fi ve years 36,398 50,781 Interest-bearing bank loans repayable within fi ve years 100,000 100,000 Share-based compensation 14,047 14,006 Convertible preferred shares and warrants not wholly payable within fi ve years 351,308 346,852 Warranty provision 165,285 148,779 Retirement benefi t obligations not wholly payable within fi ve years 154,823 145,987 Other non-current liabilities payable within fi ve years 56,222 28,960 878,083 835,365 Current portion payable within one year (12,789) (21,779) 865,294 813,586 On May 17, 2005, the Company issued 2,730,000 convertible preferred shares at the stated value of HK$1,000 per share and unlisted warrants to subscribe for 237,417,474 shares in the Company for an aggregate cash consideration of approximately US$350 million. The convertible preferred shares bear a fi xed cumulative preferential cash dividend, payable quarterly, at the rate of 4.5 percent per annum on the stated value of each convertible preferred share. The convertible preferred shares are redeemable, in whole or in part, at a price equal to the issue price together with accrued and unpaid dividends at the option of the Group or the convertible preferred shareholders at any time after the maturity date. The warrant holders are entitled to subscribe for 237,417,474 shares in the Company at HK$2.725 per share. The warrant will expire on May 17, 2010. 11. Ageing analysis (a) Ageing analysis of trade receivables at September 30, 2006 is as follows: September 30, March 31, 2006 2006 (unaudited) (audited) US$ 000 US$ 000 0-30 days 610,018 349,321 31-60 days 58,017 81,961 61-90 days 20,751 23,668 Over 90 days 21,688 29,823 710,474 484,773 Customers are generally granted credit terms of 30 days. Credit terms for customers of the systems integration business normally ranging from 30 days to 180 days. (b) Ageing analysis of trade payables at September 30, 2006 is as follows: September 30, March 31, 2006 2006 (unaudited) (audited) US$ 000 US$ 000 0-30 days 1,518,905 1,427,372 31-60 days 396,245 217,339 61-90 days 153,234 19,796 Over 90 days 87,103 18,664 2,155,487 1,683,171 LENOVO GROUP INTERIM REPORT 2006/07 11

Notes to the Condensed Interim Financial Statements (continued) 12. Accruals and other payables Included in accruals and other payables are provisions for other liabilities and charges as follows: September 30, March 31, 2006 2006 (unaudited) (audited) US$ 000 US$ 000 (a) Warranty At the beginning of the period/year 326,124 24,230 Provisions made during the period/year 192,803 409,713 Amounts utilized (117,767) (107,819) 401,160 326,124 Long-term portion classifi ed as non-current liabilities (165,285) (148,779) At the end of the period/year 235,875 177,345 (b) Restructuring At the beginning of the period/year 69,584 Provision made during the period/year 518 69,584 Amounts utilized (27,594) Unused amounts reversed (3,288) At the end of the period/year 39,220 69,584 (c) Battery recall Provision made during the period/year 18,550 At the end of the period/year 18,550 During the period, the Group announced a voluntary recall of battery packs that shipped in some of the products. Under the arrangement with the supplier, the costs associated with the recall will be reimbursed by the supplier. 13. Business combinations On April 30, 2005, the Group completed the acquisition of IBM PC Business under an asset purchase agreement dated December 7, 2004. The estimated total consideration for acquiring the IBM PC Business is approximately US$1,333 million, including cash, the Company s shares and related transaction costs. Set forth below is a preliminary calculation of goodwill: (Unaudited) US$ 000 Cash 693,728 Direct costs related to the acquisition 70,097 Fair value of shares issued 555,819 Net working capital true-up 13,630 Total purchase consideration 1,333,274 Less: Fair value of net assets acquired 35,571 Goodwill 1,297,703 12 LENOVO GROUP INTERIM REPORT 2006/07

Notes to the Condensed Interim Financial Statements (continued) 13. Business combinations (continued) The major components of assets and liabilities arising from the acquisition are as follows: (Unaudited) Fair value US$ 000 (Unaudited) Carrying value US$ 000 Cash and cash equivalents 3,122 3,122 Property, plant and equipment 77,345 75,264 Intangible assets 621,690 Net working capital excluded cash (555,637) (558,305) Non-current liabilities (110,949) (110,949) Net assets acquired/(liabilities assumed) 35,571 (590,868) The goodwill is attributable to the signifi cant synergies expected to arise after the integration of the Group s existing business and the IBM PC Business acquired. Intangible assets acquired that have indefi nite useful life are not subject to amortization. Certain acquired intangible assets are to be amortized over their useful lives ranging from three to fi ve years. The acquired tangible assets primarily comprised trade receivables, inventories and plant and equipment. The liabilities assumed primarily comprised trade payables and other current liabilities. The asset purchase agreement contains provisions that may require miscellaneous true up adjustments which are expected to result in cash payments between the Company and IBM. Such adjustments have not been fi nalized, but estimates have been recorded as part of the purchase price allocation, as indicated above. This process is expected to be fi nalized in the fi nancial year 2006/07. LENOVO GROUP INTERIM REPORT 2006/07 13

Interim Dividend The Board has declared an interim dividend of HK2.4 cents (2005/06: HK2.4 cents) per ordinary share for the six months ended September 30, 2006, absorbing an aggregate amount of approximately HK$214 million (approximately US$27 million) (2005/06: HK$212 million (approximately US$27 million)), to shareholders of ordinary shares whose names appear on the Register of Members of the Company on December 1, 2006. The interim dividend will be paid on December 6, 2006. Closure of Register of Members The Register of Members of ordinary shares of the Company will be closed from November 28, 2006 to December 1, 2006, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the interim dividend, all completed transfer forms accompanied by the relevant share certifi cates must be lodged with the Company s share registrar, Abacus Share Registrars Limited of 26/F, Tesbury Centre, 28 Queen s Road East, Hong Kong for registration not later than 4:00 p.m. on November 27, 2006. Financial Review Results For the six months ended September 30, 2006, the Group achieved a turnover of approximately US$7,176 million. Profi t attributable to shareholders was approximately US$43 million during the period, representing a decrease of US$48 million against US$91 million recorded in the same period last year. Basic earnings per share and diluted earnings per share were US0.50 cents and US0.49 cents, representing a decrease of US0.53 cents and US0.54 cents respectively as compared with the same period last year. Segment Results The Group has adopted geographical segments as the primary reporting format. Geographical turnover included Americas, EMEA (Europe, Middle East and Africa), Asia Pacifi c (excluding Greater China), and Greater China. Capital Expenditure The Group incurred capital expenditures of US$83 million during the six months ended September 30, 2006, mainly for the acquisition of fi xed assets, completion of construction-in-progress and investments in the Group s information technology systems. Liquidity and Financial Resources At September 30, 2006, total assets of the Group amounted to US$5,561 million, which was fi nanced by shareholders funds of US$964 million, minority interests of US$1 million, and non-current and current liabilities of US$4,596 million. The current ratio of the Group was 0.87. The Group had a solid fi nancial position and maintained a strong and steady cash infl ow from its operating activities. At September 30, 2006, cash and cash equivalents totaled US$1,101 million, of which 47.1 percent was denominated in US dollars, 31.8 percent in Renminbi, 4.9 percent in Euros and 16.2 percent in other currencies. At September 30, 2006, the Group had a US$400 million 5-Year Revolving and Term Loan Facility with syndicated banks, bearing interest at the London Interbank Offered Rate plus 0.52 percent per annum; and a US$100 million 5-Year Fixed Rate Loan Facility with a policy bank in China. These facilities were utilized to the extent of US$100 million at September 30, 2006. The Group has also arranged other short-term credit facilities for contingency purposes. At September 30, 2006, the Group s total available credit facilities amounted to US$1,747 million, of which US$275 million was in trade lines, US$291 million in short-term and revolving money market facilities and US$1,181 million in forward foreign exchange contracts. At September 30, 2006, the amount drawn down was US$79 million in trade lines, and US$541 million being used for the currency forward contracts. 14 LENOVO GROUP INTERIM REPORT 2006/07

Financial Review (continued) Liquidity and Financial Resources (continued) At September 30, 2006, the Group s outstanding bank loan represented the term loan of US$100 million and short-term bank loans of US$11 million. When compared with total equity of US$965 million, the Group s gearing ratio was 0.12. The net cash position of the Group at September 30, 2006 is US$990 million. The Group adopts a consistent hedging policy for business transactions to reduce the risk of currency fl uctuation arising from daily operations. At September 30, 2006, the Group had commitments in respect of outstanding foreign exchange forward contracts amounting to US$541 million. The Group s foreign exchange forward contracts are either used to hedge a percentage of future intercompany transactions which are highly probable, or used as fair value hedges for the identifi ed assets and liabilities. Any gain or loss on these contracts is offset by movements in the value of the underlying transactions or change in fair value of the identifi ed assets or liabilities. The Group issued 2,730,000 convertible preferred shares at the stated value of HK$1,000 per share and unlisted warrants to subscribe for 237,417,474 shares for an aggregate cash consideration of approximately US$350 million. The convertible preferred shares bear a fi xed cumulative preferential cash dividend, payable quarterly, at the rate of 4.5 percent per annum on the issue price of each convertible preferred share. The convertible preferred shares are redeemable, in whole or in part, at a price equal to the issue price together with accrued and unpaid dividends at the option of the Group or the convertible preferred shareholders at any time after the maturity date at May 17, 2012. The fair value of the liability component and equity component of the convertible preferred shares at September 30, 2006 amounted to approximately US$316 million and US$11 million respectively. The warrants will expire on May 17, 2010. Contingent Liabilities The Group had no material contingent liabilities at September 30, 2006. Human Resources At September 30, 2006, the Group had a total of approximately 23,500 employees, 18,200 of whom were employed in Chinese mainland and 2,000 in the U.S. and 3,300 in other countries. The Group implements remuneration policy, bonus and long-term incentive schemes with reference to the performance of the Group and individual employees. The Group also provides benefi ts such as insurance, medical and retirement funds to employees to sustain competitiveness of the Group. LENOVO GROUP INTERIM REPORT 2006/07 15

Business Review and Prospects Lenovo reported fi nancial results for the six months ended September 30, 2006. Lenovo s consolidated turnover increased 16 percent year-on-year to approximately US$7,176 million. (The prior year fi gure only contains fi ve months contribution from the PC business acquired from IBM.) China continues to be Lenovo s best performing market. The gross profi t margin for the interim period was 13.6 percent. Profi t before taxation, excluding the cost of strategic restructuring actions, amounted to US$79 million, and was helped by improving expense levels. Profi t attributable to shareholders after charging the cost of strategic restructuring actions amounted to US$43 million. Personal Computer Business During the fi rst half, Lenovo s worldwide PC total shipments increased approximately 11 percent year-on-year, better than the industry average growth of about 9 percent. Based on preliminary industry data, the Company gained 0.1 percentage points of the worldwide PC market share, accounting for approximately 7.7 percent. Growth continued to be strong in China. During the six months ended September 30, 2006, Lenovo s PC shipments increased approximately 28 percent year-on-year. Based on company and preliminary industry estimates, Lenovo s share of China s PC market increased to approximately 36 percent, representing a gain of approximately 1.7 percentage points yearon-year. This performance was attributable to the continued enhancement of product offerings to meet market needs, and the dual business model, which allows the Company to address both the high end business market and the growing smalland medium-sized business (SMB) and consumer segments. Outside China, Lenovo s performance was generally impacted by its lower penetration in higher growth market segments. The Americas saw margin pressure from slower market growth, competitive pricing and execution issues in supply chain management. Lenovo continued to roll out the transaction model to add strength in the SMB segment to its existing position in the large enterprise market. It helped drive shipment growth in EMEA. The initial rollouts in Asia Pacifi c (excluding Greater China) and EMEA pilot country have been encouraging, and will be expanded to cover additional territories. Notebook computers accounted for 52 percent of Lenovo s revenue. Similarly, the Company s notebook shipments growth outside China lagged behind the market due to its lower penetration in the faster growing SMB and consumer segments. Desktop computer shipments in emerging markets such as China and India saw good growth. Mobile Handset Business Lenovo continued to enjoy signifi cant growth in its mobile handset shipments. Unit shipments increased approximately 63 percent year-on-year, outperforming the 40 percent growth in the robust China market during the six months. Lenovo continued to hold the number four ranking in the market with a share of approximately 6.6 percent for the six months ended September 30, 2006. The strong growth in mobile handset shipments was attributable to well-received sales promotions and brand marketing programs, rapid expansion into the township market, the successful roll-out of new models and strengthened partnership with mobile telecom service carriers. Prospects During the fi rst half of the fi scal year 2006/07, Lenovo made steady progress in implementing its action plan to enhance operational effi ciency and its initiatives to drive global operational excellence. Looking forward, Lenovo will continue to focus on its four initiatives of rolling out transaction model, improving the supply chain, enhancing desktop competitiveness and building a strong brand. We believe these initiatives, coupled with the benefi ts of the recent restructuring actions, will help build a solid foundation for Lenovo s future development, and build a basis for a sustained improvement in future returns. 16 LENOVO GROUP INTERIM REPORT 2006/07

Directors right to acquire shares or debentures (A) Share Option Schemes At the Extraordinary General Meeting of the Company held on March 25, 2002, the shareholders of the Company approved the adoption of a new share option scheme (the New Option Scheme ) and the termination of its old share option scheme (the Old Option Scheme ). Despite the fact that no further options may be granted under the Old Option Scheme, all other provisions shall remain in force to govern all the outstanding options previously granted. No options were granted, cancelled nor lapsed under these schemes during the six months ended September 30, 2006. Details of the movement of share options of the Company for the six months ended September 30, 2006 were as follows: Old Option Scheme Directors Options Options Options Exercise held at exercised held at price per April 1, during September 30, ordinary 2006 the period 2006 share Grant date Exercise period HK$ (MM.DD.YYYY) (MM.DD.YYYY) Mr. Yang Yuanqing 6,000,000 6,000,000 4.072 04.16.2001 04.16.2001 to 04.15.2011 2,250,000 2,250,000 2.876 08.31.2001 08.31.2001 to 08.30.2011 Ms. Ma Xuezheng 2,920,000 2,920,000 4.072 04.16.2001 04.16.2001 to 04.15.2011 1,600,000 1,600,000 2.876 08.31.2001 08.31.2001 to 08.30.2011 Mr. Liu Chuanzhi 2,250,000 2,250,000 2.876 08.31.2001 08.31.2001 to 08.30.2011 Continuous contract 7,712,000 7,712,000 4.038 01.28.2000 01.28.2000 to employees 01.27.2010 74,480,000 74,480,000 4.312 01.15.2001 01.15.2001 to 01.14.2011 26,630,000 26,630,000 4.072 04.16.2001 04.16.2001 to 04.15.2011 832,000 832,000 2.904 08.29.2001 08.29.2001 to 08.28.2011 57,070,000 770,000 56,300,000 2.876 08.31.2001 08.31.2001 to 08.30.2011 LENOVO GROUP INTERIM REPORT 2006/07 17

Directors right to acquire shares or debentures (continued) (A) Share Option Schemes (continued) New Option Scheme Directors Options Options Options Exercise held at exercised held at price per April 1, during September 30, ordinary 2006 the period 2006 share Grant date Exercise period HK$ (MM.DD.YYYY) (MM.DD.YYYY) Mr. Yang Yuanqing 3,000,000 3,000,000 2.245 04.26.2003 04.26.2003 to 04.25.2013 Ms. Ma Xuezheng 1,600,000 1,600,000 2.245 04.26.2003 04.26.2003 to 04.25.2013 Mr. Liu Chuanzhi 3,000,000 3,000,000 2.245 04.26.2003 04.26.2003 to 04.25.2013 Continuous contract 16,526,000 730,000 15,796,000 2.435 10.10.2002 10.10.2002 to employees 10.09.2012 56,368,000 2,822,000 53,546,000 2.245 04.26.2003 04.26.2003 to 04.25.2013 116,578,000 3,296,399 113,281,601 2.545 04.27.2004 04.27.2004 to 04.26.2014 9,400,000 1,880,000 7,520,000 2.170 07.08.2004 07.08.2004 to 07.07.2014 Other participants 15,030,000 60,000 14,970,000 2.435 10.10.2002 10.10.2002 to 10.09.2012 1,600,000 1,600,000 2.245 04.26.2003 04.26.2003 to 04.26.2013 Notes: 1. Weighted average closing price of the listed ordinary shares of the Company immediately before the dates on which the options were exercised by continuous contract employees under the Old Option Scheme was HK$3.04. 2. Weighted average closing price of the listed ordinary shares of the Company immediately before the dates on which the options were exercised by continuous contract employees under the New Option Scheme was HK$2.80. 3. Weighted average closing price of the listed ordinary shares of the Company immediately before the dates on which the options were exercised by other participants under the New Option Scheme was HK$2.96. 18 LENOVO GROUP INTERIM REPORT 2006/07

(B) Long-Term Incentive Program The Company operates a Long-Term Incentive Program ( LTI Program ) which was approved by the Company on May 26, 2005. The purpose of the LTI Program is to attract, retain, reward and motivate non-executive and executive directors, senior management and selected top-performing employees of the Company and its subsidiaries. The Company reserves the right, at its discretion, to pay any awards under the LTI Program in cash or ordinary shares. Under the LTI Program, the Company may grant awards, at its discretion, using any of three types of equity-based compensation vehicles: (i) share appreciation rights ( SAR ), (ii) restricted share units ( RSU ) and (iii) performance share units ( PSU ). The total number of awards of the members of the Board, including the Chairman and CEO, under the LTI Program is set out below. Number of units Total Maximum outstanding number of As at Awarded Vested As at as at shares Award Effective April 1, during during September 30, September 30, subject to Name type price 2006 the period the period 2006 2006 conditions Vesting period (HK$) (unvested) (unvested) (MM.DD.YYYY) Executive Directors Mr. Yang Yuanqing SAR 2.42 6,362,756 1,590,700 4,772,056 6,362,756 6,362,756 05.01.2006 to 05.01.2009 RSU 2.42 928,795 928,795 928,795 928,795 05.01.2006 to 05.01.2009 PSU 2.42 928,795 928,795 928,795 1,857,590 Note 1 Mr. William J. Amelio RSU 3.10 10,013,000 10,013,000 10,013,000 10,013,000 01.01.2009 Ms. Ma Xuezheng SAR 2.42 2,081,500 520,375 1,561,125 2,081,500 2,081,500 05.01.2006 to 05.01.2009 RSU 2.42 303,900 303,900 303,900 303,900 05.01.2006 to 05.01.2009 PSU 2.42 303,900 303,900 303,900 607,800 Note 1 Non-Executive Directors Mr. Liu Chuanzhi SAR 3.15 564,000 188,000 376,000 564,000 564,000 05.01.2006 to 05.01.2008 Mr. Zhu Linan SAR 3.15 564,000 188,000 376,000 564,000 564,000 05.01.2006 to 05.01.2008 Mr. William O. Grabe SAR 3.15 564,000 188,000 376,000 564,000 564,000 05.01.2006 to 05.01.2008 Mr. Shan Weijian SAR 3.15 564,000 188,000 376,000 564,000 564,000 05.01.2006 to 05.01.2008 Independent Non-Executive Directors Mr. Wong Wai Ming SAR 3.15 564,000 188,000 376,000 564,000 564,000 05.01.2006 to 05.01.2008 Professor Woo Chia-Wei SAR 3.15 564,000 188,000 376,000 564,000 564,000 05.01.2006 to 05.01.2008 Mr. Ting Lee Sen SAR 3.15 564,000 188,000 376,000 564,000 564,000 05.01.2006 to 05.01.2008 Mr. John W. Barter III SAR 3.15 564,000 188,000 376,000 564,000 564,000 05.01.2006 to 05.01.2008 LENOVO GROUP INTERIM REPORT 2006/07 19

(B) Long-Term Incentive Program (continued) The total number of awards granted in the year (including members of the Board and employees) under the LTI Program is set out below. Number of units Maximum Cancelled/ number of As at Awarded Vested Lapsed As at shares Award Effective April 1, during during during September 30, subject to Name type price 2006 the period the period the period 2006 conditions Vesting period (HK$) (unvested) (unvested) (MM.DD.YYYY) All Directors All other employees Total SAR 2.32-3.78 12,956,256 3,615,075 9,341,181 12,956,256 12.20.2005 to 05.01.2009 RSU 2.32-3.78 1,232,695 10,013,000 11,245,695 11,245,695 12.20.2005 to 05.01.2009 PSU 2.32-3.78 1,232,695 1,232,695 2,465,390 Note 1 SAR 2.32-3.78 159,637,607 135,610,643 46,966,092 19,150,814 229,131,344 276,097,436 05.01.2006 to 05.01.2008 RSU 2.32-3.78 100,112,157 43,846,023 26,318,216 9,509,403 108,130,561 108,130,561 05.01.2006 to 05.01.2009 PSU 2.32-3.78 10,223,492 2,055,866 8,167,626 16,335,252 Note 1 SAR 2.32-3.78 172,593,863 135,610,643 50,581,167 19,150,814 238,472,525 289,053,692 12.20.2005 to 05.01.2009 RSU 2.32-3.78 101,344,852 53,859,023 26,318,216 9,509,403 119,376,256 119,376,256 12.20.2005 to 05.01.2009 PSU 2.32-3.78 11,456,187 2,055,866 9,400,321 18,800,642 Note 1 Note 1: Note 2: Within 75 days following the announcement of the audited fi nancial results of the Company for the fi nancial year ending March 31, 2008. No unit was exercised, cancelled nor lapsed during the period. 20 LENOVO GROUP INTERIM REPORT 2006/07

Directors Interests As at September 30, 2006, the interests and short positions of the directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance ( SFO )) as recorded in the register maintained under section 352 of the SFO or as otherwise notifi ed to the Company and The Stock Exchange of Hong Kong Limited (the Stock Exchange ) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) in the Rules Governing the Listing of Securities on the Stock Exchange were as follows: Interests in the shares and underlying shares of the Company Capacity and number of shares/ underlying shares held Interests in shares/ Personal Family Aggregate Name of Director underlying shares interests interests Trust long position Mr. Yang Yuanqing Ordinary voting shares 10,200,000 10,200,000 Share options 11,250,000 11,250,000 Share awards 9,149,141 9,149,141 30,599,141 Mr. William J. Amelio Ordinary voting shares 7,200,000 7,200,000 Share awards 10,013,000 10,013,000 17,213,000 Ms. Ma Xuezheng Ordinary voting shares 15,834,000 7,240,000 23,074,000 Share options 6,120,000 6,120,000 Share awards 2,993,200 2,993,200 32,187,200 Mr. Liu Chuanzhi Ordinary voting shares 16,010,000 976,000 16,986,000 Share options 5,250,000 5,250,000 Share awards 564,000 564,000 22,800,000 Mr. Zhu Linan Ordinary voting shares 3,720,000 3,720,000 Share awards 564,000 564,000 4,284,000 Mr. William O. Grabe Share awards 564,000 564,000 Mr. Shan Weijian Share awards 564,000 564,000 Mr. Wong Wai Ming Share awards 564,000 564,000 Professor Woo Chia-Wei Share awards 564,000 564,000 Mr. Ting Lee Sen Share awards 564,000 564,000 Mr. John W. Barter III Share awards 564,000 564,000 Note: Particulars of directors interests in the share options of the Company are set out under the sub-section Share Option Schemes. Details of share awards are set out under the sub-section Long-Term Incentive Program. Save as disclosed above, as at September 30, 2006, none of the directors or chief executive of the Company or their associates had any interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register maintained by the Company under section 352 of the SFO or as otherwise notifi ed to the Company and the Stock Exchange pursuant to the Model Code. LENOVO GROUP INTERIM REPORT 2006/07 21

Substantial Shareholders Interests in Securities of the Company As at September 30, 2006, the following persons (not being a director or chief executive of the Company) had an interests in the shares or underlying shares of the Company as recorded in the register maintained under section 336 of the SFO: Capacity and number of shares/ underlying shares held Nature of interests Beneficial Corporate Aggregate Name in long position owner interests long position Percentage (Note 14) Legend Holdings Limited Ordinary voting shares 2,682,774,724 1,469,311,247 4,152,085,971 48.99% (Note 1) (Note 2) Employees Shareholding Ordinary voting shares 4,152,085,971 4,152,085,971 48.99% Society of Legend Holdings Limited (Note 3) International Business Ordinary voting and 1,307,153,271 1,307,153,271 15.53% Machines Corporation non-voting shares (Note 4) TPG Advisors IV, Inc. Underlying shares 439,217,834 439,217,834 5.22% Preferred Shares 967,571 967,571 35.44% TPG GenPar IV, L.P. Underlying shares 439,217,834 439,217,834 5.22% Preferred Shares 967,571 967,571 35.44% TPG Partners IV, L.P. Underlying shares 439,217,834 439,217,834 5.22% Preferred Shares 967,571 967,571 35.44% TPG IV Acquisition Company Underlying shares 439,217,834 439,217,834 5.22% LLC (Note 5) Preferred Shares 967,571 967,571 35.44% Mr. David Bonderman Underlying shares 885,180,238 885,180,238 10.52% (Note 6) Preferred Shares 1,950,000 1,950,000 71.43% T 3 II Acquisition Company, Preferred Shares 280,429 280,429 10.27% LLC (Note 7) T 3 Partners II, L.P. Preferred Shares 280,429 280,429 10.27% T 3 GenPar II, L.P. Preferred Shares 280,429 280,429 10.27% T 3 Advisors II, Inc. Preferred Shares 280,429 280,429 10.27% TPG III Acquisition Company, Preferred Shares 312,000 312,000 11.43% LLC (Note 8) TPG Partners III, L.P. Preferred Shares 312,000 312,000 11.43% TPG GenPar III, L.P. Preferred Shares 312,000 312,000 11.43% TPG Advisors III, Inc. Preferred Shares 312,000 312,000 11.43% 22 LENOVO GROUP INTERIM REPORT 2006/07

Substantial Shareholders Interests in Securities of the Company (continued) Capacity and number of shares/ underlying shares held Nature of interests Beneficial Corporate Aggregate Name in long position owner interests long position Percentage (Note 14) Newbridge Asia Acquisition Preferred Shares 390,000 390,000 14.29% Company LLC (Note 9) Newbridge Asia III, L.P. Preferred Shares 390,000 390,000 14.29% Newbridge Asia GenPar III, L.P. Preferred Shares 390,000 390,000 14.29% Newbridge Asia Advisors III, Inc. Preferred Shares 390,000 390,000 14.29% Tarrant Advisors, Inc. Preferred Shares 390,000 390,000 14.29% GAP (Bermuda) Ltd. Preferred Shares 655,114 655,114 24% General Atlantic Partners Preferred Shares 655,114 655,114 24% (Bermuda) L.P. (Note 10) GAPCO GmbH & Co. KG Preferred Shares 1,219 1,219 0.04% (Note 11) GAPCO Management GmbH Preferred Shares 1,219 1,219 0.04% General Atlantic Partners 81, Preferred Shares 60,251 60,251 2.21% L.P. (Note 12) Gapstar, LLC (Note 13) Preferred Shares 9,750 9,750 0.36% General Atlantic LLC Preferred Shares 70,001 70,001 2.56% GAP Coinvestments IV, LLC Preferred Shares 11,100 11,100 0.41% GAP Coinvestments III, LLC Preferred Shares 42,566 42,566 1.56% Notes: 1. The English company name Legend Holdings Limited is a direct transliteration of its Chinese company name. 2. The shares were benefi cially held by Right Lane Limited, a direct wholly-owned subsidiary of Legend Holdings Limited. 3. Employees Shareholding Society of Legend Holdings Limited is an equity holder of Legend Holdings Limited which in turn wholly owns Right Lane Limited. Therefore, it is taken to be interested in any shares in which they are interested. 4. International Business Machines Corporation ( IBM ) had an interest in an aggregate of 1,307,153,271 ordinary shares, comprising 931,870,515 ordinary voting shares and 375,282,756 ordinary non-voting shares. 821,234,569 voting ordinary shares and 921,636,459 ordinary non-voting shares were allotted to IBM upon initial closing of the Company s acquisition of IBM s global desktop computer and notebook computer business on April 30, 2005. On May 17, 2005, IBM converted 110,635,946 ordinary non-voting shares to an equal number of ordinary voting shares. The Company repurchased 435,717,757 ordinary non-voting shares from IBM on August 2, 2005. The ordinary non-voting shares have the same rights as the ordinary voting shares save that the ordinary non-voting shares shall not carry any voting rights until they are converted into listed ordinary voting shares. LENOVO GROUP INTERIM REPORT 2006/07 23